The Honorable Lu Hardin State Senator 309 South Vancouver Russellville, Arkansas 72801
Dear Senator Hardin:
This is in response to your request for an opinion on two questions concerning whether "farm mortgages" of the Farmer's Home Administration are exempt from Arkansas' usury law, found at Arkansas Constitution, art. 19, § 13. Specifically, you indicate that apparently some residential mortgages have been ruled to be exempt from Arkansas' usury law; but a local realtor has received some indication that "farm loans in the Farmer's Home Administration" are not exempt. Your two questions are as follows:
1. Are farm mortgages under Farmer's Home loans exempt from the Arkansas usury law?
2. If they are not, is there any constitutional problem with some mortgages being exempt and others not?
It is my opinion, in response to your first question, that "farm mortgages under the Farmer's Home Administration" are exempt from Arkansas usury law.
Interest rates chargeable on real estate loans made by the Farmer's Home Administration are governed by federal law. See7 U.S.C. 1927. This provision gives the Secretary of Agriculture the authority to determine interest rates on such loans "but not in excess of the current average market yield on outstanding marketable obligations of the United States with remaining periods to maturity comparable to the average maturities of such loans, plus not to exceed one (1) per centum, as determined by the Secretary, and adjusted to the nearest one-eighth of one (1) per centum." 7 U.S.C. § 1927 (a)(2).
This federal law, in my opinion, controls as to the interest rates chargeable on Farmer's Home Administration real estate loans, and not the Arkansas usury provision. In fact, Arkansas Constitution, art. 19, § 13, provides that:
The provisions hereof are not intended and shall not be deemed to supersede or otherwise invalidate any provisions of federal law applicable to loans or interest rates including loans secured by residential real property.
Any provisions of federal law governing interest rates on mortgages will thus control over Arkansas law.
Finally, the law governing the operation of the newly enacted Federal Agricultural Mortgage Corporation, ("Farmer Mac"), which was established to guarantee certain agricultural mortgages in the secondary market, provides that:
State usury law superseded. Any provision of the constitution or law of any State which expressly limits the rate or amount of interest, discount points, finance charges, or other charges that may be charged, taken, received, or reserved by agricultural lenders or certified facilities shall not apply to any agricultural loan made by an originator or a certified facility in accordance with this title . . . that is included in a pool for which the Corporation has provided a guarantee.
12 U.S.C. § 2279aa-12(d).
If such mortgages are included in a "Farmer Mac" guaranteed pool, the loans are exempt from Arkansas usury rates.
It is therefore my opinion, for all of the above reasons, that generally, the answer to your first question is "yes." Farm mortgages of the Farmer's Home Administration are exempt from Arkansas' usury laws.
The resolution of your first question renders an answer to your second question unnecessary.
The foregoing opinion, which I hereby approve, was prepared by Assistant Attorney General Elana L. Cunningham.
Sincerely,
WINSTON BRYANT Attorney General
WB:cyh